Euroland Economic News

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Eurozone business growth slows more than expected
DOW JONES NEWSWIRES AUGUST 21, 2014 7:30PM

Business activity in the eurozone expanded sluggishly in August, held back by weakening factory output in its two biggest economies.

Financial data firm Markit said its purchasing managers' index for the eurozone, a closely watched gauge of private-sector activity, weakened in August to 52.8 from 53.8 in July. A reading above 50 indicates expansion.

The figures suggest the economy of the 18-nation currency union slowed a little over the summer, a sign its feeble pace of growth in the second quarter may continue in the third.

Rob Dobson, senior economist at Markit, said the data suggest third-quarter growth is unlikely to be strong enough to fuel the levels of hiring the eurozone needs to bring down high unemployment. The jobless rate was 11.5 per cent in June.

"Signs are that the modest job creation of recent months has stalled in August," Mr Dobson said.

The survey data showed eurozone growth in August was powered by the region's services firms, who reported the fastest pickup in new work since May 2011. Manufacturing activity weakened, growing at its slowest pace in 14 months, Markit said.

Activity in Germany and France, the region's two biggest economies, followed a similar pattern.

Growth in Germany lost some momentum in August, held back by the weakest manufacturing sector performance since June 2013.

Markit said its purchasing managers' index for Germany slowed to 54.9 in August from 55.7 a month earlier. Services led the expansion but factory output dipped. Growth in industrial production was the weakest in a year and manufacturing jobs were cut for the third month running, Markit said.

A separate jobs report offered better news. Total employment increased in Germany in the second quarter, according to the country's statistics office, Destatis. It said that the number of persons employed in Germany was about 42.5 million in the second quarter, a 0.8 per cent increase on the same period one year ago, driven by gains in the services sector.

In France, private-sector activity expanded overall in August after three months of contraction. Markit's purchasing managers' index for France rose to 50 in August from 49.4 in July.

The improvement was driven by France's services firms, while French factories continue to struggle. Services output picked up at the fastest pace for five months, yet activity in the manufacturing sector shrank and firms shed jobs. Companies also reported a squeeze on profits from higher raw material costs and aggressive discounting to win sales, Markit said.

The eurozone economy stalled between April and June, expanding a feeble 0.2 per cent in annualized terms.

Confirmation of the slowdown came at a time when tensions with Russia over Moscow's alleged involvement in unrest in Ukraine threaten to hurt trade between the eurozone and its eastern neighbor and push up energy prices, potentially crimping growth further.

The European Central Bank in June cut interest rates and announced a package of stimulus measures aimed at reviving lending in the 18-nation economy. Critics say the central bank still hasn't gone far enough to revitalize growth. ECB President Mario Draghi counters that governments must do more to reform economies overburdened by taxes and red tape.

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http://www.cnbc.com/id/101940773

EUROPE: EconOMY
Draghi says ECB stands ready to adjust policy further
4 Hours Ago
Reuters

European Central Bank chief Mario Draghi is confident that stimulus steps announced in June, helped by a weaker euro, will boost demand in the ailing euro zone economy, but stressed on Friday that the central bank stands ready to do more.

Speaking at the annual Jackson Hole conference of central banks, Draghi said recent growth data confirmed the currency bloc's recovery remained "uniformly weak" and promised to keep the policy stance accommodative for an extended period of time.

After his speech, the euro strengthened against the dollar.

The ECB cut interest rates to record lows in June and launched a series of measures to pump money into the sluggish euro zone economy, where inflation has been in what Draghi has called "the danger zone" of below 1 percent for 10 months.

Read More ECB 'won't move a muscle' despite deflation fears
Mario Draghi, president of the European Central Bank (ECB).
Martin Leissl | Bloomberg | Getty Images
Mario Draghi, president of the European Central Bank (ECB).
"I am confident that the package of measures we announced in June will indeed provide the intended boost to demand, and we stand ready to adjust our policy stance further," Draghi said in a speech text.

"The Governing Council would use also unconventional instruments to safeguard the firm anchoring of inflation expectations over the medium- to long-term," he said.

He did not, however, add any qualifier this time, such as in introductory remarks at his August news conference when he added: "...should it become necessary to further address risks of too prolonged a period of low inflation".

Read MoreYellen: Closer to objectives, hard to gauge slack
The most powerful tool left in the ECB's toolbox are large-scale asset purchases, also known as quantitative easing (QE), although Draghi made no reference to this in his speech.

Draghi expected support for the economy from a weaker euro, a planned scheme to revive Europe's market for securitised loans and the ECB's new long-term loan plan, dubbed TLTROs, for which he said there was "significant interest from banks".

"We have already seen exchange rate movements that should support both aggregate demand and inflation, which we expect to be sustained by the diverging expected paths of policy in the US and the euro area," he said.

Read MoreFed's Lockhart: Looking for more months of data
The euro hit its weakest level against the dollar since September 2013 on Friday.

While the euro zone is teetering on the brink of deflation, struggling with stagnant growth and double-digit rates of unemployment, the picture looks more rosy across the Atlantic where the U.S. Federal Reserve has started to rein in stimulus.

The Fed is widely expected to start raising interest rates next year, a move that is seen to push up the dollar and thereby weaken the euro further.


"Necessary structural reforms"

Leading business surveys this week showed that growth in business activity in the euro zone slowed more than expected in August, despite widespread price cutting, which bodes ill for a pickup in inflation which is already close to zero.

Euro zone annual inflation stood at 0.4 percent in July, the weakest since October 2009 at the height of the financial crisis and a far cry from the ECB's target of below but close to 2 percent. It is expected to weaken further in August.

Calls for the ECB to do more grew louder after data showed growth ground to a halt in the second quarter, dragged down by a shrinking economy in Germany and a stagnant France, even before any impact from sanctions imposed on and by Russia over Ukraine.

Read More Draghi breaks new ground with negative interest rate
On Friday, James Bullard, the president of the St. Louis Federal Reserve Bank, joined the chorus, calling on the ECB to act to bolster the flagging euro zone economy and lift inflation, warning of risks to the global recovery.

Draghi, in his speech, made clear neither monetary nor fiscal policy alone could solve Europe's problems, urging governments to push ahead with structural reforms, such as making labour markets more flexible.

"No amount of fiscal or monetary accommodation, however, can compensate for the necessary structural reforms in the euro area," Draghi said.

A stronger coordination among euro zone member countries on fiscal policies should in principle allow for a more growth-friendly overall fiscal stance for the euro zone, he said.

—By Reuters

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ECB's Draghi signals departure from austerity focus
DOW JONES NEWSWIRES AUGUST 23, 2014 5:15AM

European Central Bank President Mario Draghi on Friday signaled a departure from the austerity-focused mind-set that has dominated economic policy-making in the euro zone since the onset of the region's debt crisis nearly five years ago, as officials struggle with stagnant economies, weak prices and high unemployment.

Speaking at the Federal Reserve Bank of Kansas City's annual conference Jackson Hole, Wyoming, Mr Draghi said European central bankers and politicians each have a role to play in boosting demand and reducing joblessness. For its part the ECB is willing to take more stimulus measures if needed to keep low rates of inflation from becoming embedded in expectations of future price growth, he said.

"It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy, and I believe there is scope for this, while taking into account our specific initial conditions and legal constraints," Mr Draghi said in his prepared remarks.

Although Mr Draghi's comments didn't constitute an endorsement of rampant deficit spending to boost euro zone economies, they nevertheless marked a shift away from years of preaching by ECB officials that governments needed to shrink deficits and undertake economic reforms even during times of economic weakness.

Critics say that mixing fiscal austerity with labor-market reforms exacerbated Europe's downturn, even though they have long-term payoffs.

Mr Draghi's comments came days after a report showed that the euro-zone economy stalled in the second quarter, fanning fears that the bloc's roughly $US13.5 trillion ($A14.5tn) economy is stuck in a lasting rut of stagnation and high unemployment.

The GDP data "confirm that the recovery in the euro area remains uniformly weak, with subdued wage growth even in non-stressed countries suggesting lackluster demand," he said.

His remarks signaled a new approach to these risks: combining policies to stimulate demand with efforts to make labor markets more flexible. With inflation at very low levels--annual inflation in the euro zone was just 0.4 per cent last month, far below the ECB's 2 per cent target--policy makers should cast aside any fears that stimulus policies may lead to inflation and instead focus on keeping high unemployment from taking root in Europe, he suggested. The euro zone's unemployment rate was 11.5 per cent in June, far higher than in the US, UK and Japan.

"The risks of 'doing too little'" and allowing temporary unemployment to become more entrenched "outweigh those of 'doing too much'--that is, excessive upward wage and price pressures," Mr Draghi said.

The package of stimulus measures the ECB approved in June--which included record-low interest rates, new four-year loans to banks and preparations to purchase bundled bank loans known as asset-backed securities--should improve demand, Mr Draghi said.

Plans to purchase ABS are "fast moving forward and we expect that it should contribute to further credit easing," he said.

The euro's recent decline against other currencies should also help boost demand and prices, he said. The euro has declined from a peak of around $US1.40 against the US dollar in the spring to $US1.324 midday Friday. A weaker exchange rate helps growth via exports, and raises inflation by increasing the cost of imported goods.

Recent exchange-rate movements should be "sustained by the diverging expected paths of policy in the US and the euro area," Mr Draghi said. The Federal Reserve is widely expected to raise interest rates by the middle of next year, whereas the ECB is expected to keep its main lending rate near zero for years.

"We stand ready to adjust our policy stance further," Mr Draghi added, an indication that large-scale purchases of public and private debt, known as quantitative easing, remain an option to keep inflation from staying too low for too long.

Turning to fiscal policy, Mr Draghi said policy makers should use the flexibility embedded in European budget rules "to better address the weak recovery and to make room for the cost of needed structural reforms." He also backed proposals for a significant boost in public investment.

In addition, "it may be useful to have a discussion on the overall fiscal stance of the euro area," Mr Draghi said, with better coordination of policies aimed at "a more growth-friendly overall fiscal stance."

Although Mr Draghi didn't mention specific countries, the remark suggests that euro members with balanced budgets, such as Germany, should be doing more to stimulate their economies and Europe more broadly.

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http://www.businesstimes.com.sg/premium/...g-20140826

PUBLISHED AUGUST 26, 2014
Eurozone bond yields dive as Draghi boosts talk of ECB easing

Most eurozone yields hit new lows, but Greek yields still above 2014 troughs

Central bankers meet: US Fed chair Janet Yellen talking to Mr Draghi in Jackson Hole on Friday. Mr Draghi said there that the ECB was set to respond with all its 'available' tools should inflation drop further. - PHOTO: REUTERS
[LONDON] Yields on most eurozone government bonds hit record lows on Monday as speculation grew that the European Central Bank (ECB) was preparing a big programme of asset purchases to counter wilting inflation.
Germany, France, Italy, Spain, Portugal, Ireland and others saw their yields hit all-time lows. Greek yields fell sharply but remained above this year's troughs as a senior source told Reuters that Athens had near-term plans to sell debt.
In stronger language than he has used in the past, ECB president Mario Draghi said on Friday at an annual meeting of central bankers in Jackson Hole, Wyoming, that the ECB was prepared to respond with all its "available" tools should inflation drop further.
This increased speculation the ECB could embark on a large-scale asset-buying scheme known as quantitative easing, or QE, to pump cash into the financial system and revive inflation. "For sure Draghi sounded a little bit more open to doing more," said Jean-Francois Robin, global head of strategy at Natixis. "The market is clearly buying the ... idea of QE."

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http://www.cnbc.com/id/101948124

Euro zone yields turn negative on Draghi hopes
Katy Barnato | @KatyBarnato
6 Hours Ago
CNBC.com
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COMMENTSJoin the Discussion

Borrowing costs across Europe slid further this week, amid raised hopes of a U.S. Federal Reserve-style quantitative easing (QE) program to boost the euro zone's struggling economies.

For the first time, yields on several euro zone sovereign bonds turned negative–meaning that investors are effectively paying to governments to hold their money.


Peter Gridley | Taxi | Getty Images
Finnish, Dutch, Belgian and Austrian 2-year bond yields all turned negative for the first time this week, hitting record lows. German 2-year Schatz and 3-year Bunds also yielded under 0 percent.
Finnish bonds reached a low of -0.010 percent on Tuesday, while Austrian Bunds yielded a low of -0.002 percent. Dutch and Belgian bond yields turned negative on Monday, with the former yielding -0.006 percent on Tuesday and Belgium's turning narrowly positive.

This came after a stage-stealing speech from European Central Bank (ECB) President Mario Draghi at the Jackson Hole symposium of central bankers on Friday, in which he suggested more would be done to boost the euro zone economy and limit the risk of deflation. His comments have fueled expectations of further easing—potentially as soon as at the central bank's September meeting—and boosted European equities as well as bonds.

'Groundbreaking' Draghi brings cheer to markets
"The market appears to be pricing a rising probability of further action by ECB," noted Barclays analysts Bill Diviney and Kieran Davies in a note on Tuesday.

Euro zone government bond yields have been on a broadly downward slide since Draghi pledged to do "whatever it takes" to save the euro from collapse back in 2012. This June, borrowing costs—particularly for the less-robust "peripheral countries"—took a further tumble after Draghi announced multiple measures to boost the region's growth prospects, including introducing negative rates on the ECB deposit facility.

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At Jackson Hole, Draghi referred to the risks a further drop in euro zone inflation would cause, and said the ECB would use "all available instruments" within its mandate to ensure price stability over the medium term.

"Draghi's comments at Jackson Hole have also supported our view that the ECB will take the plunge into full-blown quantitative easing, probably around the turn of the year," Capital Economics' analysts said in a research note on Tuesday. "A longer period of near-zero interest rates in the euro-zone should keep yields much lower in Germany than in the U.S."

Euro zone inflation fell more than expected in July, coming in at just 0.4 percent—the lowest level since October 2009.

Quantitative Easing: CNBC Explains
Recently, Reuters and Greek newspaper Ekathimerini have reported that Greece plans to take advantage of the lower borrowing costs, with a debt exchange from Treasury-bills to 1.5 billion euros ($1.98 billion) in 3-5-year bonds in the coming weeks.

—By CNBC's Katy Barnato

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Eurozone inflation cools further in August
DOW JONES NEWSWIRES AUGUST 29, 2014 8:15PM

The annual inflation rate in the 18 nations that use the euro sank further in August, official figures showed Friday, heaping further pressure on the European Central Bank to take more aggressive steps to fuel growth in the eurozone's stagnant economy.

Annual inflation in the eurozone cooled to 0.3 per cent from 0.4 per cent in July, according to a preliminary estimate from Eurostat, the European Union's statistics agency, driven by a fall in energy, food, alcohol and tobacco prices.

The slowdown takes the annual rate of inflation to its lowest level since Oct 2009 and brings the currency union closer to outright deflation, when persistent falls in prices hurt consumer spending and make it harder for households, businesses and governments to service their debts. Spain and other troubled nations on the eurozone's periphery are already experiencing price declines; recent data show inflation cooling in healthier northern economies, too.

The decline also moves annual inflation further away from the ECB's target of just under 2 per cent. Officials cut interest rates in June and announced a new batch of long-term funding for banks to fuel lending and lift growth but there are signs the central bank is considering yet more stimulus.

ECB President Mario Draghi said at a weekend gathering of central bankers in Jackson Hole, Wyoming, that expectations of future inflation in financial markets had reached worrying lows. That opened the door wider to large-scale purchases of public and private debt by the ECB, a practice known as quantitative easing, analysts said.

Economists at Deutsche Bank said this week that ECB officials could sanction the purchase of some private-sector assets as soon as next month. Other analysts expect the ECB to tread more carefully, and wait to see how their June stimulus measures work out before agreeing to any additional easing of policy. Officials next meet September 4.

The slowdown in inflation comes against a backdrop of weak growth. The eurozone economy stagnated in the second quarter, expanding by a feeble 0.2 per cent in annualized terms. The unemployment rate in July was 11.5 per cent, the same as in June, Eurostat said Friday.

Growth in the US and the neighboring UK, which isn't part of the eurozone, has picked up sharply. The US expanded an annualised 4.2 per cent in the second quarter, according to the latest estimates.

Recent data suggest the eurozone economy may struggle to accelerate much in the third quarter. German retail sales data Friday showed sales fell at their steepest monthly pace since July 2012, a sign consumer spending in the currency union's biggest economy may not be enough to offset a weakening outlook for businesses.

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UK sees highest consumer lending since 2008
AAP SEPTEMBER 01, 2014 7:00PM

Lending to households in the UK rose in July to its highest monthly total in six years, a sign that low interest rates and a fast-growing economy are reviving Britons' appetite for borrowing.

Bank of England data Monday showed Britons borrowed a total of £3.4 billion ($US5.6 billion) in July, net of repayments, the highest monthly total since July 2008, and higher than the £2.8 billion borrowed in June.

Net mortgage lending was £2.3 billion, also the highest since mid-2008. The number of new home loans approved dipped, however, to 66,569 in July from 67,085 a month earlier, an early sign that lending in the property market may be stabilising following the introduction in April of tougher lending standards.

Unsecured borrowing totalled £1.1 billion in July, up from £700 million in June, the BOE said.

The pickup in lending should reassure policy makers that housing and consumer spending will continue to help fuel Britain's economic recovery. But it may also raise concerns that Britons are in danger of taking on debts they may struggle to repay, as wage growth has been weak.

Lending to businesses also rose in July, to a net £1.2 billion, after shrinking by £3.9 billion a month earlier. Boosting the supply of credit to businesses, particularly small and midsize firms, has been a key goal for BOE and government officials.

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Eurozone manufacturing falls in August
DOW JONES NEWSWIRES SEPTEMBER 01, 2014 7:30PM

Activity in the eurozone's manufacturing sector slowed more sharply than first estimated in August, with Italy joining France in contraction, while German factories had their most sluggish month since September of last year.

By contrast, economies that have been hit hardest by the currency area's fiscal and banking crises showed signs of recovery, with activity in Greece expanding again, while Ireland's factories had their strongest month since late 1999.

However, fresh signs that the currency area's economy remains mired in stagnation, with manufacturers cutting jobs in August, will likely add to pressure on the European Central Bank to take more dramatic stimulus measures to boost demand and inflation.

The headline measure from data firm Markit's monthly survey of purchasing managers at more than 3,000 manufacturers fell to 50.7 from 51.8 in July, an indication that growth was very modest. A reading above 50.0 for the Purchasing Managers Index indicates an expansion in activity, while a reading below that level signals a contraction.

The final measure was slightly lower than the preliminary estimate of 50.8 released late last month.

Markit said the slowdown likely reflected the impact of rising tensions between the European Union and Russia over the future of Ukraine, as well as growing doubts about the effectiveness of eurozone economic policy and its likely future course.

"The braking effect of rising economic and geopolitical uncertainties on manufacturers is becoming more visible," Markit economist Rob Dobson said. "This is also the case on the demand front, with growth of new orders and new export business both slowing in August."

Activity in Spain's manufacturing sector slowed for the second straight month in August, a sign that the economic recovery may be losing some momentum.

Spain's economy grew at its fastest quarterly pace in six years during the second quarter, with gross domestic product increasing by 0.6 per cent from the three months to March. The revival of the Spanish economy -- the eurozone's fourth largest -- has been one of the few positive developments for the currency area over the past nine months.

The slowdown in manufacturing suggests that the revival may ease in the third quarter, although their were indications in the survey that it is set to persist: manufacturers continued to hire additional workers, while new orders rose at the fastest pace since April 2007.

"Although output growth has eased from the sharp rates seen in the second quarter, a faster rise in new business and build-up of backlogs of work suggest that the current sequence of expansion will continue in coming months," said Andrew Harker, an economist at Markit.

A survey of Dutch manufacturers also released Monday recorded a similar slowdown in activity during August. By contrast, a survey of Irish manufacturers recorded a pick-up in activity unmatched since December 1999.

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ECB cuts refi rate to 0.05%
AMBER PLUM SEPTEMBER 04, 2014 10:15PM

The European Central Bank has cut each of its three key interest rates at its August policy meeting, following a wave of disappointing economic data across the eurozone.

From September 10 the ECB refinancing rate will be 10 basis points lower, at 0.05 per cent, meaning banks will pay interest of just half a percentage point on funds borrowed from the central bank.

Meanwhile, banks will have to pay more in order to park funds with the ECB overnight, with the deposit facility rate taken 10 basis points further into negative territory, to stand at -0.20 per cent.

The ECB also cut its marginal lending facility interest rate by 10 basis points to 0.30 per cent.

The move comes on the heels of second-quarter economic data showing the eurozone's largest economies struggling to lift growth. Across the union, growth was flat in the quarter, running at a 0.2 per cent annualised rate.

Germany, the eurozone's largest economy, saw growth turn negative for the quarter, shrinking 0.2 per cent as weak exports and investment weighed. And French GDP came in flat for the second consecutive quarter, prompting Paris to say growth had "broken down".

The bank's decision is its first move since June, when it took its key overnight rate into negative territory for the first time in June.

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http://www.cnbc.com/id/101972719

Europe could have a new problem on its hands: Pro
Alex Rosenberg | @CNBCAlex
3 Hours Ago
CNBC.com


On Thursday morning, the European Central Bank surprised markets with a raft of stimulative measures including cuts in interest rates and the commencement of asset purchases.

The news sent the euro currency much lower, but currency expert Boris Schlossberg of BK Asset Management identifies another reason why the euro could call even further: fresh concerns over a European Union breakup.

ECB president Mario Draghi, in announcing the measures, mentioned that the vote was not unanimous. The strongest economy in the eurozone, Germany, is widely expected to have dissented.

"It's a very, very tenuous union in many ways, and we see the conflict come to the forefront anytime we have these issues," Schlossberg said Thursday on CNBC's "Futures Now."

Read More Draghi: ECB to purchase asset-backed securities

At this point, German unease over ECB stimulus "could become a very, very serious problem," he said. "We'll be watching the conflict very carefully in the fall and into the winter to see just how serious the Germans are in their opposition to this move."

German Chancellor Angela Merkel speaks with Mario Draghi, president of the European Central Bank (ECB).
Getty Images
German Chancellor Angela Merkel speaks with Mario Draghi, president of the European Central Bank (ECB).
Ironically, Schlossberg notes that it was the very reticence of the Germans that forced the ECB into action.

The central bank is "the only institution within the eurozone that is able to act in concert. There is is simply no other way for Europeans to stimulate growth, because they have all these disparate governments with different points of view."

But while Schlossberg expects the euro/dollar to fall all the way to 1.2850, he does note that it is "extremely oversold," and could bounce in the near-term.


—By CNBC's Alex Rosenberg